WASHINGTON, June 6 (Reuters) - U.S. defense contractorGeneral Dynamics said on Wednesday that Chief ExecutiveJay Johnson would retire at the end of the year, to be succeededby Phebe Novakovic, who took over as president and chiefoperating officer just last month.

Johnson, who celebrated his 66th birthday this week, willreceive a bonus of $3.6 million, plus an additional $825,000 forconsulting services through the end of June, General Dynamicssaid in a filing with the Securities and Exchange Commission.

Novakovic, a one-time CIA officer named by Fortune magazinelast year as one of the "50 most powerful women in business,"was running the company's marine division before being named toher current role in March. She will take over as CEO on Jan. 1.

The management changes cap months of behind-the-sceneswrangling about the future leadership of the company, whichbuilds everything from Navy destroyers and nuclear submarines toArmy tanks and Gulfstream business jets.

In March, General Dynamics said it was splitting thecompany's leadership to make Novakovic, 54, president and COO.

At the time, sources predicted that Johnson would leave hisposition within a year, making room for Novakovic to move up tothe top spot. But Wednesday's announcement came earlier thanexpected, amid mounting concerns about slowing sales and a fallin the company's share price.

The latest move will also make Novakovic the highest-rankingwoman to run a major U.S. defense contractor, following a pathblazed by Linda Hudson, a former General Dynamics official, whonow heads the U.S. unit of Britain's BAE Systems.

"The defense industry is undergoing a demographic revolutionin which women for the first time ever are rising to the mostsenior jobs at places like General Dynamics and BAE Systems andLockheed Martin," said defense consultant Loren Thompson.

"Twenty years ago you wouldn't have believed that thisindustry was capable of such a transformation."

Lockheed Martin Corp announced in April thatMarillyn Hewson, who has held a wide array of leadership posts,would become president and chief operating officer in January.

Novakovic, who joined General Dynamics in 2001, had thestrong backing of Nick Chabraja, the powerful former chiefexecutive of the company who still holds a seat on the board,according to sources familiar with the process.

The General Dynamics board made the decision at a regularmeeting on Wednesday.

Johnson, a former Navy F-14 fighter pilot who rose to becomea four-star admiral and chief of naval operations, said thetiming of the changes made sense.

"The company is on an excellent financial footing, ouroperational performance is unmatched and our leadership team isvery robust. This is the right time to transition," he said in astatement released by the company.

EARLIER THAN EXPECTED

But defense consultant Jim McAleese said Johnson'searlier-than-expected departure reflected the board's concernabout first-quarter declines in sales and earnings in theinformation systems sector, which generates about a third ofoverall sales.

Those results, and signs that a key customer, the U.S. Army,was slowing spending even before tough budget cuts take effect,had driven General Dynamics shares down by about $3 in April.

"Clearly the company needs a catalyst to reenergize thestock," McAleese said, adding that Novakovic was seen byinvestors as shrewd, charismatic and decisive.

Before joining General Dynamics, Novakovic spent nearly fouryears as a special assistant to the defense secretary and deputysecretary of defense from 1997 to 2001.

General Dynamics shares closed $1.64 or 2.46 percent higheron Wednesday at $63.62, still well below a year high of $75.92reached in July 2011.

General Dynamics cited development of a new double-V hullStryker combat vehicle, which protects soldiers from roadsidebomb attacks, as among its most significant operationalachievements during Johnson's tenure.

It said Johnson also oversaw the start of two-per-yearproduction of Virginia-class attack submarines, and the finaldevelopment of two new aircraft for Gulfstream, theultra-long-range Gulfstream G650 and the super mid-sizedGulfstream G280. Both aircraft are scheduled to enter servicethis year.

Johnson, who joined General Dynamics' board in 2003, was thechief executive of Dominion Virginia Power before taking a topmanagement job with General Dynamics in 2008. He moved into theCEO job in June 2009 when Chabraja retired.

Johnson said he felt he met his objectives to extend thecompany's "excellent performance, enhance the relevance of theproducts and services we deliver to our customers and continuethe development of a strong group of well-qualified executiveswho would be ready to lead the company into a new era."

Thompson said Novakovic would face tough challenges when sheassumes power, including the prospect of $500 billion inadditional defense spending cuts on top of $487 billion alreadyslated to take effect over the next decade.

"Johnson is leaving General Dynamics in pretty good shape,but his successor is going to face some really dauntingchallenges in terms of budget sequestration and decliningmilitary demand," he said.